Three young entrepreneurs turned their business around by ditching partners who were draining the company coffers.
All the answers to your unique business lifestage questions
Only once you have all the numbers can you decide how much to pay yourself. The figure has to be in line with what the business can realistically afford.
When a business partnership broke down because some of the founders were using the company as an ATM, Alex Tshabalala, William Sekgobela and Nathi Khumalo re-launched it.
The team behind BRAW Transformation Outsourcing, a company that helps organisations to prepare for and maintain BBEEE verification, learnt a hard lesson about controlling cash flowing into and out of the business.
Related: Musician Concord Nkabinde on treating music like a business
How much should you pay yourself? It’s a question that many entrepreneurs ask. Too little and you may struggle to survive. Too much and your business might be at risk. How do you strike the right balance? Two of BRAW’s original partners felt they were being robbed of what was rightfully theirs when CEO Alex Tshabalala tried to put a limit on salaries.
“They were more interested in self-enrichment than growing a sustainable business,” he recalls. “As far as they were concerned, whoever brought in a client had to receive 70% of the value of the deal, with the balance going into the company account. That was simply unsustainable. It was quickly obvious that you cannot pay yourself more than the business can afford.”
Tshabalala says that when the absurdity of the situation kicked in, he knew the company would not survive for a second year. “Money was at the root of this disagreement and it led to a lengthy dispute which had to be resolved legally.”
From this he learnt a few key lessons:
Don’t confuse revenue with profits
When you see money coming into your business, don’t assume you can pay yourself a big slice of that. Before you take your share, the operational costs need to be covered. This includes taxes, fixed costs, overheads and employee salaries. Keep track of all these expenses and calculate profit rather than revenue or turnover. Only then can you ascertain how much the business can afford to pay you.
Invest in the business to make it grow
Money you take out of the company for salaries is money that you are not investing for business growth.
“Many of the most successful entrepreneurs will tell you that investing at least a portion of the profits back into the business is what enables growth, and the more you invest, the more likely it is that the company will grow,” says Tshabalala.
Pay yourself a set salary
Do not make the mistake of taking cash out of the business account when you (or your partners) need extra money. Decide on salaries upfront (in accordance with the business’s profitability), stick to the agreed amount, and pay yourself regularly. If you are not sure how much you should be earning, talk to people in similar industries or types of business and find out what the going rate is for the role you play in your business.
Related: Advertising legend, Ivan Moroke on the 5 questions your marketing strategy absolutely has to answer
- Remember that a sound business requires financial management. Get a good accounting solution that lets you keep track of all expenses, income and profit
- You may not employ an accountant, but be sure to use the services of an accounting consultancy to oversee the books and provide advice. With cloud-based accounting software, you and your accountant will be able to view the financial status of the company anytime, anywhere.